Urban Economics and Urban Policy
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Urban Economics and Urban Policy

Challenging Conventional Policy Wisdom

Paul C. Cheshire, Max Nathan and Henry G. Overman

In this bold, exciting and readable volume, Paul Cheshire, Max Nathan and Henry Overman illustrate the insights that recent economic research brings to our understanding of cities, and the lessons for urban policy-making. The authors present new evidence on the fundamental importance of cities to economic wellbeing and to the enrichment of our lives. They also argue that many policies have been trying to push water uphill and have done little to achieve their stated aims; or, worse, have had unintended and counterproductive consequences.
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Chapter 4: Planning for a housing crisis: or the alchemy by which we turn houses into gold

Paul C. Cheshire, Max Nathan and Henry G. Overman


A common thread in this book is how unexpected consequences, often the exact opposite of those intended, can result if policy is formulated without allowing for the power of markets. No policy arena offers a more dramatic example of this than British planning - land use regulation - policy. In very simple terms what British land use regulation - planning - has done is restrict the supply of housing space. It restricts the amount of land available for housing and it also restricts the height of buildings. Look at the skyline of London compared to New York, where height restrictions increase house prices (Glaeser et al. 2005). What do economists know about the impact of these kinds of restrictions? Economists like to retain a healthy level of scepticism about everything and much in economics is uncertain and debated. But there are some things on which nearly all mainstream economists would agree. Perhaps the nearest to unanimity one could find would be the proposition that if the supply of a good does not vary much as its price changes, and if the demand for that good rises proportionally more than incomes as incomes rise but is subject to cyclical fluctuations, then the price of that good will rise over the long run relative to other prices and its price will be volatile over the cycle.

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